The Cuban peso chains this Wednesday more than two weeks of increases in the informal market after Washington’s announcement that it would eliminate the limits on remittances, something unprecedented in 18 months but that does not necessarily anticipate a rebound in the country’s economywarned three economists to the agency EFE.
Almost like a mirror, the exchange rate of the Cuban peso (cup) with the dollar that is bought on the street —the official fixed rate is 24 to 1— fell significantly 48 hours after the announcement by the Joe Biden Administration , on May 16.
This change in the graph also coincided with the announcement of last May 14 of the Minister of Economy and Planning, Alejandro Gil Fernández, that the Cuban State would sell dollars, or in fact freely convertible currency (MLC) above the official exchange rate to “state and non-state national suppliers” with certain conditions.
The purchase went from 115 cup per dollar on May 17 to 95 that fell on May 23, an equivalence that had not been seen since January, according to data calculated by the independent media The touchwhich produces a daily rate taken as a reference by the experts.
This Wednesday the dollar was exchanged at 98 cup in the informal market, with a more stable behavior, according to this indicator made with the average of hundreds of currency trading announcements on Cuban digital platforms.
The trend is significant. The dollar had appreciated progressively since its official exchange rate was unified at 24 to 1 in January 2021, as part of a broad and controversial economic reform called Ordering Task.
The Cuban economist Pedro Monreal recently calculated that the equilibrium rate of the exchange rate —an estimate based on macroeconomic variables— would be this year at 82 cup per dollar, as explained on your blog The state as such. In the background is the persistent crisis that affects Cuba, the result of the combination of the pandemic, US sanctions and failures in the national economic policy.
Cuban peso “balance” rate estimated at 82 CUP per USD for 2022. https://t.co/2vwQ9fvbCD
– Pedro Monreal (@pmmonreal) June 1, 2022
fleeting appreciation
This appreciation of the Cuban currency has been just an ephemeral change that has little to do with the behavior of the economy as a whole, the experts clarified.
“In the short term, yes, (the peso) can go up or down based on any statement Biden makes,” he told EFE Cuban economist Elías Amor.
Cuban Pavel Alejandro Vidal, associate professor at the Javeriana University in Cali (Colombia), agreed with Amor: “Things are so bad that any news about any dollar that can enter is a breather for the economy.”
Analysts point out that the appreciation of the cup responds to the “expectations” that were generated in a market hungry for foreign exchange.
Cuba temporarily suspended bank deposits of dollars in cash in June 2021 due to “obstacles” of the US embargo, but state banks have continued to accept other currencies such as euros, pounds sterling, Canadian dollars or Japanese yen.
Cuba: Central Bank denies news about selling dollars to the population
background problems
Economists point out that the underlying problem with the Cuban peso is that it has no real value —due to the great difference between the official exchange rate and the street rate— and that the Ordering Task has been able to help little, with mixed results.
Those measures devalued the peso and led the country to a kind of partial dollarization in its attempt to unify exchange rates.
For Pavel Vidal it was “a monetary reform at the worst possible time”, under the influence of the COVID-19 crisis and the tightening of US sanctions against Cuba approved by the Donald Trump government (2017 -2021).
To these factors, the economist Tamarys Lien Bahamonde added that, more than a year after the Ordering Task, there is a lot of Cuban peso in circulation but not dollars.
“The only thing that the (informal) exchange rate is reflecting is that there is a shortage of foreign currency in Cuba,” he estimated.
Amor went further and explained that the oversupply of the cup is due to the fact that the Government has tried to balance its deficit – which he estimates at around 18% of the gross domestic product (GDP) – with national currency.
“Economists value the trend of things in the long term,” stressed the Cuban economist.
Unlike Amor, Vidal pointed out that the changes in US policy towards the island and the gradual reopening of tourism —a key sector for Cuba in terms of contribution to GDP and foreign exchange earnings— can be reflected in an effect rebound for the national economy, but “without being the boom”.
Bahamonde, for his part, indicated that, despite the fact that it is still early to forecast a change in the economy, it seems that “the (Cuban) market is beginning to recover its level.”
The Cuban government perceives a “gradual recovery” of its economy and considers that the gross domestic product (GDP) could advance by 4% this year, after the contraction of 13% in the two previous years.
